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The Cost of Complexity, The Cost of a Single-Family Office
The cost of operating a single-family office can easily add up to 1.5 million USD per year. Hence, how much investable asset does a family need to have in order to make setting up a family office worthwhile? Let us dive into that here.
At many conferences and summits for wealthy families that we have attended, when the topic of how much money it takes to have a single-family office comes up, the most often quoted “magic figure” is 100 million USD liquid.
Whilst this ballpark figure sounds “whole”, some Single-Family Offices are established based on total net worth which may include value of illiquid assets such as real estate investments and operating businesses. Very often, the liquid assets can be well below the supposed US$100 million mark.
4 Main Costs of a Family Office:
1. Internal operating costs – salaries and employment benefits, overhead, technology, and telecoms.
2. Direct family expenses – residences, philanthropy, art or other collections, travel, administration, consumption, and taxes.
3. Professional service fees – accounting, tax & legal, advisors, insurance, and security.
4. Investment advisory fees – management & custodian fee, research & analysis, and aggregated reporting.
If you look at the standard operating cost of 1.5 million USD, that is a hefty 1.5% per annum based on 100 million liquid USD recommendation. Therefore, in order to minimise costs (as well as to fully utilise the expertise of a Family Office), most wealthy families nowadays work with a Multi-Family Office (MFO).
Goal of a Family Office?
Multi-family offices provide the same bespoke tailor-made services to a distinguished group of wealthy families, offering the benefits of a single-family office at a more accessible cost.
The needs of every family is unique, therefore the services a Multi-Family Office provides may vary. The ultimate goal is to protect, grow and transfer their wealth on to the next generation and generations to come. Because we work exclusively with wealthy families and individuals, we understand their unique wants and needs. Time is often the most valuable asset and our firm can help to make the most of their time.
Advantages of Setting Up a Family Office?
Security & Confidentially
• A dedicated Family Office increases security and privacy. Access to private information, wealth management, and advisory services is controlled and central. That means there is less concern that outside companies and staff will view family data.
Alignment of Interests & Goals
• Without a family office, individual family members may be moving in different directions. Each family member may have an independent advisor and working towards conflicting goals. With a family office, the same advisors can work to align the direction for all family members.
Higher Transparency
• The management of complex issues with wealth can be handled in a way that is appropriate to the family and provides better access to the information for all family members. This transparency, can create openness, and help to avoid future misunderstandings and disputes within the family.
Higher Returns
• A Family Office will achieve better returns on investments due to reduced investing costs.
Process Alignment
• Centralisation of processes for tax, communications, education, professional services and philanthropy can help to ensure tasks are aligned with family goals to produce targeted results.
Difference between Independent Financial Advisor and Family Office?
A common question is, “What is the difference between an Independent Financial Advisory (IFA) firm and a Family Office (FO)?” Typically, an IFA firm may offer financial planning, asset management and investment strategies with the goal of helping clients pursue their financial goals.
A family office, on the other hand, exclusively works with affluent families, serving both their financial and non-financial needs to ensure their nest eggs grow and are protected.
While every family office is unique, many FOs offer comprehensive wealth management, as well as the various other needs of a family, such as utilities bill payment, travel arrangements, rental properties management and more.
Raffles Family Office
Incorporated and based in Hong Kong, Raffles Family Office charges an annual management fee for overseeing your family’s assets with a minimum account size of 5 Million USD in investable assets. The fee may vary according to the amount of assets we must advise as well as the amount of work required. Raffles Family Office is the holding company of Raffles Assets Management (HK) Co. Limited, therefore we are Accredited Investors (AI) licenced by Securities and Futures Commission of Hong Kong (SFCHK).
When you compare the 1-2% in fees you are paying your brokerage firm to receive a small fraction of these services from an advisor who is not a professional investor, we believe the case for using a Family Office becomes crystal clear.
Additionally, Raffles Family Office is the holding company of Raffles Capital Holdings Limited which is our insurance brokerage arm; Raffles Properties Limited; as well as Raffles Corporate Services (HK) Limited. In future, we will have our own Finance department so we can even do financing in-house. You can trust that your wealth is managed by our experts internally.
This material is provided for informational purposes only, it does not constitute an offer to sell, or a solicitation or an offer to buy. The copying, saving or other reproduction, adaptation, modification, transfer, assignment, other utilisation or exploitation of the content or parts thereof without the prior written permission of the Raffles Assets Management (HK) Co. Ltd is strictly prohibited.